Money lending: Mbarara leaders welcome 2.8 percent interest rate cap
MBARARA, December 6, 2024 – Leaders from Mbarara and the broader Ankole Sub-region have praised the government for introducing an interest rate of 2.8 percent per month on loans charged by the money lenders in the country.
Previously, although the Uganda Microfinance Regulatory Authority (UMRA) was responsible for licensing Tier 4 microfinance institutions and money lenders, it lacked the power to regulate interest rates on loans.
However, following the passage of the Tier 4 Microfinance Institutions and Money Lenders Bill 2024, Finance Minister Matia Kasaija announced on November 8 that interest charged by money lenders would be capped at 2.8 percent per month or 33.6 percent per annum.
“In accordance with Section 89 [1] of the Tier 4 Microfinance Institutions and Money Lenders Act, the maximum interest rate that a money lender shall charge on the principal sum of money advanced as a loan to a borrower is 2.8% per month or 33.6 percent per annum,” the notice stated.
Juliet Nabakoza, Deputy Chairperson of Mbarara City, welcomed the move, emphasising that regulating interest rates for money lenders was long overdue as borrowers had long suffered.
“Money lenders have become like bloodsuckers. For instance, many Tier IV financial institutions are offering loans at exorbitant rates, and in some cases, they end up taking over clients’ land,” Nabakoza explained.
Allan Karakure Buhanda, Commercial Officer for Mbarara City, encouraged Ugandans to seek more affordable financial assistance from recognised institutions like Savings and Credit Cooperative Organisations [SACCOs], which will now be more competitive with the 2.8 percent interest cap. He noted that high-interest loans had led to numerous legal disputes and hoped the new cap would reduce such cases.
Amon Mutabarura, District Commercial Officer [DCO] for Rwampara, echoed similar concerns, highlighting the widespread public dissatisfaction with the high and exploitative interest rates charged by money lenders. “Borrowing from the money lenders has been incredibly costly for many in the public, with some already losing their property for failing to repay these expensive loans,” he said.
He encouraged locals to borrow from SACCOs, emphasising that SACCO members are part owners of the institution, contributing their own money, and actively participating in decision-making. “This is not the case with money lenders,” he added.
During the recent launch of the Standard Gauge Railway [SGR] project, which will run from the Malaba border, Tororo district in eastern Uganda to Kampala, and later on beyond, President Yoweri Museveni expressed his support for the 2.8 percent interest rate cap. He stated that the new regulation would protect borrowers from being exploited by financiers.
Haruna Kyeyune Kasolo, State Minister for Microfinance, reinforced the new regulations, stressing that every money lender must obtain a licence, which will be renewed annually. He added that violators of the law would have their licences revoked.
“Anyone wishing to remain in the lending business must comply with the 2.8 percent interest rate. If you are unwilling to lend at this rate, then you should exit the business and pursue other ventures,” said Kasolo.
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